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July 13, 2020STUDY: CONSUMER EXPENDITURES DURING COVID-19: AN EXPLORATORY ANALYSIS OF THE EFFECTS OF CHANGING CONSUMPTION PATTERNS ON CONSUMER PRICE INDEXES Statistics Canada has released a study on an analytical price index that uses basket weights based on consumer expenditures during the months of the COVID-19 pandemic. Shifts in household purchasing patterns have implications for the basket weights used in the calculation of the Consumer Price Index (CPI). Typically, expenditure patterns evolve slowly and in a sustained manner over time. COVID-19 significantly altered consumer behaviour over a very short period of time, likely affecting consumption patterns which by design are not accounted for by the official CPI fixed basket weights. To assess the impact of COVID-19 on Canadian household expenditures, Statistics Canada partnered with the Bank of Canada on a study of recent expenditure data. Alternative expenditure weights were estimated and used to calculate an analytical price index series for March to May, 2020.
April Weights vs. Official CPI Weights (Largest Differences)
For April, the first full month of the COVID-19 pandemic, the revised weights suggest that Canadians directed relatively more of their spending in April to shelter and food components. The proportion of consumer expenditures on transportation had the largest drop, as a result of lower expenditures on passenger vehicles, air transportation and gasoline. The basket weights for recreation, education and reading and clothing and footwear also fell, as many products and services in these categories became difficult to obtain or completely unavailable for consumption. At the same time, consumers spent more on household products, healthcare products and alcohol in April.
Inflation
The Analytical price index was slightly higher than headline (all-item) CPI in April and May. The difference between the official CPI and the Analytical price index can be attributed to two main factors:
- The Analytical price index captures consumer shifts away from products and services due to restrictions and reduced demand, such as clothing and traveller accommodation. The impact of downward price movements of these components on the all-item Analytical price index was reduced.
- Consumers shifted toward products deemed essential during the pandemic, such as household paper supplies and non-perishable foods. Prices for these products rose due to higher demand. When the importance of these products grew in the basket, there was additional upward pressure on the all-item Analytical price index.
The headline (all-item) Analytical price index was 0.2 percentage points higher in April 2020 and 0.3 percentage points higher in May 2020, compared to the official CPI.
Source: Statistics Canada, Consumer expenditures during COVID-19: An exploratory analysis of the effects of changing consumption patterns on consumer price indexes
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